Tax payments are extremely important. Whether you’re an Originator or provider, you need to be making sure you’re using both the correct banking conventions and tax payment type code. That’s why Nacha is offering this short refresher.

Let’s start with the banking conventions, which are meant to standardize certain remittance information. Nacha maintains the conventions and you’ll find more about that on Nacha’s website at https://www.nacha.org/content/banking-conventions.

Where tax payments are concerned, there are two conventions to be mindful of: TXP and TPP, both of which are for state and federal tax payments.

TXP is used to simplify taxes for businesses by allowing them to transmit an ACH credit payment, with remittance detail, in a single transaction. Nacha has worked with industry partners to make TXP the standard means of business tax remittance, in a Corporate Credit or Debit (CCD) transaction, for the majority of the states, as well as many cities, counties and municipal tax authorities.

TPP provides information for third parties making state and federal tax payments on behalf of a consumer. A prime example is a payroll service provider remitting employee tax withholdings on behalf of a company. TPP ensures that the necessary identification of the third-party payer and the taxpayer for whom the payment is being made are provided. 

As for tax payment type code, that’s a mandatory element of an ACH payment utilizing the TXP or TPP format. The code enables the receiving agency to identify the purpose of payment and properly allocate it.

Changes are made from time to time, and you don’t want to miss anything. That’s why it’s important to put a reminder on your calendar to check periodically for any updates. Nacha does not maintain any lists of codes. Please see:

• IRS Publication 4990 for federal tax form codes: https://www.irs.gov/pub/irs-pdf/p4990.pdf. 
• The Federation of Tax Administrators (FTA) website for state codes: https://taxadmin.org/txp-and-tpp-codes/. 

In the last year, the following unified third party payment codes have been added to the FTA website:

• 143: Lottery.
• 180: Paid Family Leave.
• 302: Unspecified Tax Type.
• 304: May Be Applied to Multiple Tax Types.

Staying updated to ensure you use the right tax payment type code—with the correct banking convention—can help avoid a long list of problems.